Fun with Deficit Statistics

Q: Is it true that this year’s deficit is greater than the total taxable income of Americans earning more than $100,000?

A: No, it’s not true. The statistic comes from a Wall Street Journal editorial, which has been corrected.

FULL QUESTION

I keep hearing the following, and I’d like to know if it’s true or false. "The entire taxable income for every American who earned over 100k in 2008 was 1.5 trillion. Even if taxed at 100% it would not cover the deficit for this year."

FULL ANSWER

Blame it on the Internet. In an April 14 editorial, the Wall Street Journal used the statistic our reader above cited. The line was quickly picked up and posted on Internet message boards in conversations about taxes, President Obama and the deficit. And Sen. Tom Coburn made a similar claim on "Fox News Sunday" on April 17. Several of our readers asked us whether the figure was accurate. It’s not, and the Journal has corrected it.

The paper originally said:

Wall Street Journal, April 14: According to Internal Revenue Service data, the entire taxable income of everyone earning over $100,000 in 2008 was about $1.582 trillion. Even if all these Americans—most of whom are far from wealthy—were taxed at 100%, it wouldn’t cover Mr. Obama’s deficit for this year.

But all of the taxable income of those earning more than $100,000 in 2008 was actually $3.4 trillion, more than double the figure published in the editorial. We checked the math ourselves using IRS data. The Journal ran a correction on April 19 on page A16. The online version of the editorial was corrected two days later. The bottom of the editorial now says: "An earlier version of this story incorrectly stated that the total taxable income of Americans earning over $100,000 in 2008 was $1.582 trillion. The correct figure is $3.4 trillion."

We’ll see if the correction makes its way onto Internet message boards.

Coburn: What the president is proposing is to markedly increase taxes on people above, I think, $250,000. You can take all of their money and you wouldn’t — you could take all the money that they earn above $100,000 and you wouldn’t cover our deficit this year.

When we asked the Oklahoma senator’s office for support for his claim, a spokeswoman originally pointed us to a Heritage Foundation post that said it would be impossible to cover the 2010 deficit by only raising the top two marginal income tax rates. But that’s not what Coburn was talking about. The spokeswoman later agreed the Journal was the likely source for the senator’s comment.

He said it differently, however. The Journal‘s stat was about "entire taxable income" of everyone earning more than $100,000. Coburn talked about "all the money that they earn above $100,000" and only for people earning more than $250,000. Taxable income is less than what a person actually earns; it’s gross or adjusted gross income minus exemptions and itemized or standard deductions.

We attempted a loose calculation of Coburn’s specific claim. We looked at adjusted gross income (that’s gross income minus common deductions) for those earning at least $200,000 in 2008 — the IRS doesn’t break it down by $250,000 — and we subtracted $100,000 for each filer. We ended up with $2 trillion, enough money to cover the projected deficit. The same calculation for taxable income produces $1.62 trillion, a bit less than the deficit. But, again, Coburn talked about earnings, not taxable income. And we were not able to exclude those who earned more than $200,000 but less than $250,000.

Bottom line: No one is suggesting the government seize everyone’s income above $100,000. These figures are used to show that the government can’t, in a reasonable and realistic manner, only raise taxes to solve the deficit problem. (For the record, Obama has called for $2 trillion in spending cuts and $1 trillion in additional tax revenue over 12 years.) But perhaps there’s a less confusing, and accurate, statistic one could use to make that point.